Are Birmingham Running Before They Can Walk?

One of the least dull points to emerge from the recent Soccerex talk-fest in Manchester was the importance of ‘local identity’ to the financial well-being of football clubs. But this was only thought true of the second-highest echelons of European football; the Football League Championship and ‘lesser’ European national leagues. The big boys, the EPL and La Liga in particular, were all “worldwide fanbases” and “global brands.” Yet there is the sense that the participants in the particular session, “European Leagues – competing in the international and domestic market place,” were getting ahead of themselves. For all the strengths of Manchester United’s reach from Thailand to Timbuktu, their fanbase remains overwhelmingly Mancunian – more local, in fact, than many of their peers, despite the Tunbridge Wells stereotype.

So it is that Birmingham City’s desire to conquer China when they aren’t even the biggest club in their own city inspires unease rather than admiration for their ambition. And there is unease in the Blue part of Birmingham at rather more than that. Court cases and chief executives have gone the way of City’s league form and FA Cup dreams in a couple of turbulent months, as the regime personified by “Hong Kong businessman” Carson Yeung enters the phase where not being David Sullivan or David Gold is not enough anymore. Surprisingly little is made of Yeung’s surprisingly small stake in the club of which he is routinely described as owner. In his own words in a recent interview in the Independent newspaper, he described himself as worth “enough to have a company that buys a football club for £81m.”

This puts him at arms-length and reveals that concentrating on how much he is “worth” (the question which elicited that answer) isn’t really the point when it comes to Birmingham’s finances and the current haziness over their summer transfer budget – currently estimated at £10m plus a hat with a rabbit in it. He “had” the small-time clothing company Grandtop International Holdings, which was the vehicle for his convoluted purchase of the club and the company which so comprehensively lost the recent court case against investment bank Seymour Pierce, to which we shall return. He “has” a mere 16% of Birmingham International Holdings, the company now running the club. This makes him the major, if far from the majority, shareholder, as everyone else with a holding has less than 10%.

This has the side-effect (co-incidental, naturally) of allowing these shareholders to retain anonymity. Many bought into the company as part of the takeover itself, so would not have been identified in the offer document. But it means that some combination of shareholders, not just Yeung and possibly not even Yeung, holds the purse strings. Most of the big expenditure attached to Grandtop’s takeover brought with it the name Pollyanna Chu, billionaire director of Hong Kong banking and finance group Kingston Securities and replete with the sort of controversial, run-in-with-the-authorities background we’ve come to expect from football takeover participants, and it would surely be more informative to examine her wealth and attitude when it comes to Birmingham’s future.

In the meantime, we are left with Yeung and his public team’s desire to bring Chinese stars to Birmingham and replicate the “Yao Ming” model which has given America’s National Basketball Association such a high profile in the world’s most populous country. Anyone who watched China’s 2010 World Cup qualifying campaign will appreciate the enormity of the task Yeung is setting himself even by saying “obviously we’re not going to just bring in a mediocre Chinese player.” The side have admittedly improved a little since, winning the East Asian championship in Japan earlier this year and putting Lebanon in their place in qualifying for next year’s Asian Cup. But they do not possess an individual with the star quality of Yao Ming, the Houston Rockets NBA all-star who, at seven-and-a-half feet is even described in basketball circles as “tall.”

Yeung said all the right things, however, with regard to what manager Alex McLeish might think of this, declaring: “we’re not going to impose a Chinese striker and remove James McFadden” – although China’s two goals in six World Cup qualifiers suggests wasn’t a likely scenario anyway. The worry is that Grandtop said most of the wrong things during their recent legal spat with Seymour Pierce. The mixture of naivety and incompetence revealed by the detailed judgment on the case easily answered the question posed rhetorically by Grandtop’s legal representative: “If the deal failed, why should any success fee be payable?” Newly-resigned Chief Executive Michael Dunford could conceivably have resigned over the prospect of having to work with such a team. His resignation is wrapped up by a no doubt lucrative confidentiality agreement. But in keeping so steadfastly mum about it, Dunford has shown way more discipline than Grandtop did in the Seymour Pierce case.

Seymour Pierce won the case over a £2.2m “success fee”, which they claimed was payable despite not succeeding in advising Yeung to a successful purchase of all the shares in Birmingham City in 2007. As well as the obvious point about paying bankers a success fee for failing – hardly unusual these days, of course – Grandtop noted that there was twenty months between their failed bid and last summer’s successful one, which was advised by a different firm, BDO Stoy Hayward (“at a much lower fee,” the court noted). This mattered because of a clause in Grandtop’s contract with Seymour Pierce that allowed the fee to be paid if there was a “success” within twelve months of Seymour Pierce’s “failure” – a contract clause for which there is logic, although that’s mind-numbing detail for a legalese-fetishist website. The contract required Grandtop to provide three months’ written notice of Seymour Pierce’s termination as a result of the failed bid. This would still have left seventeen months between the bids.

Yet Grandtop forgot to write, assuming that Seymour Pierce’s termination would automatically happen. There was no written reference to this termination until May of last year, within five months of Grandtop’s successful bid for Birmingham. Ergo, Seymour Pierce was due the £2.2m. Grandtop’s legal team offered all the inescapable logic in the world. But because the “contract expressly so provided,” they had to pay up, Mr Justice Eady not always a “success” himself in hiding his contempt for Grandtop in his summary judgement. Phrases such as “none of this affects” and “it is not necessary…to determine this” regularly suffix the details of Grandtop’s case. And in one remarkable paragraph it is revealed that an e-mail sent to Grandtop Chief Executive Vico Hui containing a draft contract “has not been found yet…and Mr Hui states that he does not recollect whether Grandtop actually received the draft.” Not the sort of thing that should slip one’s mind, I’d suggest.

This lack of attention to detail has permeated Grandtop’s time in the Birmingham City spotlight since introducing us to the concept of “post-acquisition due diligence” last year, a posh way of saying they hadn’t done pre-acquisition “diligence”, when it really was “due.” The discovery of all kinds of “during-acquisition” payments to departing board members including former pornographer David Sullivan typified Grandtop’s failings. As Sullivan rightly pointed out (not a common phrase, that), the previous board had made no secret of City’s financial problems, Sullivan and Gold very publicly (as is their wont) injecting £4-5m into the club in May 2009. The issue arose again in March, when Birmingham’s accounts for their promotion season showed a £20.5m pre-tax loss. This would not have come as a surprise to the new regime if they had done their due diligence (although Sullivan was “surprised the figures are quite as high as this,” which might yet be another future article).

And suggestions that Sullivan and Gold could be sued for misleading Grandtop during the takeover process raised the spectre of more “success fee”-style embarrassment for Yeung and Co. (let’s not even start on the legal threats over whether David Gold was offered the Blues chairmanship after the takeover or not). This non-diligence has led to a move from “planning to support the club for £20-40m in January” at the time of the takeover to “the aim is…to manage…costs while being as competitive as possible within the club’s financial constraints” in the 2009 annual report. Admittedly, even Yeung says talk of £40m transfer budgets “wasn’t the best thing to do for any number of reasons.” But it is still a huge downshift in financial expectations as the club now heads towards the “difficult second season” in the Premier League that has done for first-season surprises such as Ipswich and Reading in recent seasons (and first three months surprises such as Hull in recent days).

This isn’t the best pad on which to launch a commercial assault on China. Houston Rockets have had some good times with Yao Ming on their roster. Unless Birmingham are well-placed to avoid “second season syndrome”, no Chinese footballer is going to have an equivalent impact; no disrespect, but Wigan away doesn’t really have the requisite glamour, so Scunthorpe away certainly doesn’t. Whoever really is running and funding Birmingham City at the moment may need a refresher course, to safeguard the good work already done. Otherwise the Chinese takeover will just be another example of over-reaching short-term ambition leading to long-term chaos. And heaven knows we’ve had enough of that in English football in recent times.

9 Comments

Billy Jones
on April 30, 2010 at 9:17 pm

This article has a lack of attention to detail and is clearly written by someone with an agenda.

If the previous owners of Birmingham City have nothing to hide why did they offer £500k which was turned down ?

Poppa999
on April 30, 2010 at 10:53 pm

Are there any site rules?

The only thing that we ask is that you keep the comments decent and that you disagree with us (which you are more than welcome to do), you keep your criticism constructive. All messages from people that haven’t posted messages on here before are moderated before being approved. Abusive messages will be deleted without appearing on the site and this extract from the site FAQ will appear in place of them, so you may as well not bother.

Adam
on May 1, 2010 at 12:16 am

What sensationalist and agenda based drivel.

Just because a “journalist” doesnt know much about Carson Yeung, or his fortune, or his company…they’re instantly labelled as useless, and lacking in the money department…what next, the over the top “Birmingham will end up like Portsmouth” thing?

As for the whole Yao Ming thing…Blues will be looking to China, and opening up a Chinese soccer school, whats wrong with that? OK, they may not be the footballing elite, but the occassional good player does spring up from Asia… not always China, but the likes of Korea (Park Ji-Sung in particular), Japan (Hidetoshi Nakata a few years back was one of the best midfielders in the game)…whats to say the next big Asian player will be a Chinese International? And whats to say that our link to that market means he will be a Birmingham player?

I seriously hope that this “small club” as many journalists and media outlets always think of us as, finally does something to make EVERYONE sit up and take notice, and to acknowledge us as a decent football club, as opposed to just another club that makes up the numbers.

In future, I suggest if you dont want to pay attention to detail, and want to write an article without a full knowledge of what it is your writing about, then perhaps dont bother at all?

admin
on May 1, 2010 at 12:19 am

Billy and Adam: Out of interest, what do you think Mark’s “agenda” is? Actually, I’ll clarify that question: do you think Mark has an “agenda” against “small” clubs or, more generally, do you think that this site has an “agenda” against “small” clubs?

James Hammond
on May 1, 2010 at 6:34 am

What the hell? Birmingham are a ‘small club’….er yeah okay NOT!! What a ridiculous statement to come out with Birmingham are not even the biggest club in their own city? I think you’ll find they are by some considerable distance. Aston Villa have had more success but Birmingham’s fan base is far superior than theirs. A local journalist stated that the majority of football supporters in the city are Birmingham fans with their demographic being ABC1 suggesting that the majority of the support is youngsters which says a lot really. As for what is this guys agenda? They were insinuating that he was a Villa supporter 0.o.

Sean
on May 1, 2010 at 7:25 am

this is ridiculous, i cannot believe this guy is payed..

Paul
on May 1, 2010 at 8:11 am

And there is unease in the Blue part of Birmingham at rather more than that.

Not amongst the Blues fans I know and talk to, all of whom are positive.

“Hong Kong businessman”

Why the unnecessary punctuation? You tell us what he is if not a businessman instead of cheap pointscoring.

and the current haziness over their summer transfer budget – currently estimated at £10m plus a hat with a rabbit in it.

Yeung has acknowledged he blundered in telling the press how much he wanted to spend in the last transfer window. Do you think he should make the same mistake twice?

I could go on (like the author goes on and on) but what really is the point? He has made his mind up and like other posters states, has an agenda for his own reasons. Not a well thought out article.

There’s plenty of reasons to be sceptical about Yeung and his team, the initial failed takeover bid, the post acquisition due diligence as you mention. But it’s worth noting that Yeung’s plans to develop the fanbase in China is a credible mechanism to increase the income of the club, an therefore a sound basis for funding improvements.

That is a quite different idea to the usual scenario where hugh sums are spent buying big name players on the hope that the future income from the champions league will pay their wages.

Yeung has some interesting ideas which are a bit different. I think most of the blue half of Birmingham are interested to see how this all pans out and for now he has their support.